- Advertisement -

Uhuru Bank Forecasts Economic Growth to Recover to 3.9% Next Year

- Advertisement -

NCBA Group PLC (NCBA) is projecting the country’s Gross Domestic Product (GDP) to grow by 3.9 percent in 2021 if the second wave of Covid-19 is less severe and the government continues to reopen the economy.

Economists at NCBA say the recovery of the economy will also be dependent on how quickly business are able to reopen; how fast a vaccine is found and how fast government revenues pick up, allowing for healthy spending beyond the Big Four.

Speaking during the 3rd NCBA Economic Forum, NCBA Group Managing Director, John Gachora said that whereas things had begun looking up with the easing of restrictions, it felt more like a “truce” than an actual “peace treaty” and continues to call for a unique response and preparedness. 

The economists however project the economy could still recover at a more moderate pace of 2.5% in 2021 if the second wave of the pandemic is severe but lockdowns are still more localized.

“Given the immense uncertainty that the pandemic continues to present, we looked at likely growth under different scenarios, informed by the evolution of the pandemic and potential policy interventions,” they noted.

NCBA projects that the agriculture sector will provide primary support to the recovery. 

They however predict that shifting priorities may cause the government to prematurely withdraw its tax relief measures, thus hurting recovery path.

According to NCBA, the Government could face significant fiscal challenges in addressing the raging pandemic while simulating growth.

The analysts however warn that the strategic shift to domestic markets could crowd out the private sector.  They project the Ksh524 billion domestic debt target may be scaled further up towards Ksh600 billion as revenues grossly underperform. 

They also project that non-performing loans (NPLs) ratio could accelerate towards 15% as prudential guidelines are retightened. 

“While NPLs for banks have stabilized around 13%, it is clear that the prudential interventions masked a lot of delinquencies for banks and their effects on balance sheet will be lagged,” they noted. They warn that risk of capital loss could undermine banks’ appetite for private sector lending. 

At the same time, the heavy liquidity demand by the sovereign may divert capital away from the productive sector.  This may further subdue domestic demand and private investments.

NCBA expects the GDP to contract by 1.8% in 2020. This is a downgrade from the initial baseline projection of a 0.2% expansion in 2020 and markedly slower than the 5.4% growth in 2019.

“The unique source of uncertainty and the longevity of the pandemic has made for a challenging investment environment, weakened household and firm incomes aggravating earlier fragilities in domestic demand,” they noted.

See Also>>>> Kenya’s Economic Recovery Hinges on Performance of One Sector

- Advertisement -
BT Reporter
BT Reporterhttp://www.businesstoday.co.ke
editor [at] businesstoday.co.ke
- Advertisement -
Must Read
- Advertisement -
Related News
- Advertisement -


Please enter your comment!
Please enter your name here